The Prospects of the Halal Cosmetic Industry in Indonesia
In the midst of the COVID-19 pandemic, which has weakened various economic sectors such as hotels, restaurants and retail, the world’s cosmetic industry has actually strengthened. Based on data released by the UK-based research institute, Research and Market, throughout 2020 the valuation value of world cosmetics sales reached USD 145.3 billion, and is expected to continue to grow with a compound annual growth rate (CAGR) of 3.6% per year during the 2020-2027 period. In 2027, the valuation of the world cosmetic market is projected to reach USD 185.5 billion (Research and Market Global Cosmetic Skin Care Industry (2020 to 2027)).
The global cosmetic market experienced a significant contraction in 2020. According to Statista, the growth of the global cosmetic market fell by 8%. This percentage is 13.25% lower than its growth in 2019 which rose 5.25%. This is in line with the global economic slowdown due to the Covid-19 pandemic.
VISI projects that the beauty and personal care market in the world would grow again by around 3.25% in 2021 and slowly increase to 3.41% in 2022. This condition is strongly driven by an increase in online sales due to lifestyle changes during the Covid-19 pandemic.
In line with the positive development of the global cosmetic market, the Indonesian cosmetic industry has also shown rapid growth in recent years. This growth is driven by Indonesia’s large market, with a population of 270 million and a growing middle class. In addition to being marketed under various domestic brands, the Indonesian cosmetic industry has also begun to offer an Original Equipment Manufacturer (OEM) scheme, especially for skincare products.
Continuing the growth that occurred in the domestic market, the Indonesian cosmetic industry also showed an increasing export contribution performance. In 2020, exports of Indonesian cosmetic products (HS 33) reached USD 784.9 thousand, up 1.5% compared to exports in 2019. Export growth for the last 5 (five) years also showed positive performance by recording an average growth by 3.3% per year during the period 2016 to 2020 (ITC, Trademap (2021) processed).
Cosmetics market revenue in Indonesia will reach USD 1.6 billion in 2022. Statista Consumer Market Outlook estimates that revenue from the cosmetics market will reach almost USD 2.2 billion in 2026.
The Prospects of the Halal Cosmetic Industry in Indonesia
Indonesia is also the largest market for Muslim spending globally across all sectors of the halal economy, with a combined USD 184 billion for halal products and the lifestyle sector, representing 11.34% of global halal economic spending. Therefore, Indonesia maintains the 4th position in the overall GIEI (Global Islamic Economy Indicator) ranking, a global ranking of the country’s ecosystem strength in all halal economic sectors.
As one of the largest Muslim populations in the world with 237.53 million Muslims (about 86.9% of the total population (data from the Ministry of Home Affairs, as of December 31, 2021), Indonesia is driving global demand for halal cosmetics. The global halal cosmetics market is expected to grow reached USD 54.16 billion in 2022, with a growth rate of 15.2% for the cosmetics segment during the forecast period (Allied Market Research, 2017). This figure illustrates that the demand for halal cosmetic products will continue to increase due to the increase in the purchasing power of the population. the increasing number of Muslims and also the desire of the Muslim community to associate their interest in cosmetic products that adhere to religious loyalty. Therefore, the term halal cosmetics emerged.
According to the Indonesia Halal Economic Report 2021/2022, Indonesia halal cosmetics industry at USD 4.19 billion is projected to grow by almost 8% per year until 2025. Indonesia is only behind India, whose consumption reaches USD 5.88 billion. Bangladesh is in third place with consumption of USD 3.67 billion. Then, neighboring Malaysia recorded consumption of USD 3.44 billion. Malaysia’s consumption value is the same as Russia’s. The world’s consumption of halal cosmetics reached USD 65 billion in 2020. The growth of consumption of halal cosmetics in East Asia continues to grow, supported by cosmetic brands from Indonesia.
In line with the above, in October 2014, the Indonesian government issued a new regulation that requires halal certification for products circulating in Indonesia, namely Law Number 33 of 2014 concerning the Law on Halal Product Assurance. The law applies to all products imported, circulated and traded in Indonesia. Especially for cosmetic products, the obligation for halal certification has been set since October 17, 2021, and stakeholders must meet the deadline until October 17, 2026.
Halal regulations have brought new opportunities for the cosmetic industry in Indonesia. Not only giving local cosmetic manufacturers a competitive advantage over foreign brands in the domestic market, local halal-certified cosmetic companies can also increase their market share in foreign markets such as Europe, and according to findings from the Pew Research Center, the number of Muslims in Europe has grown from 29.6 million in 1990 to 44.1 million in 2010. And Europe’s Muslim population is projected to exceed 58 million by 2030. Muslims currently make up about 6% of Europe’s total population, up from 4.1% in 1990.
The implementation of halal certification for Indonesian cosmetic products has proven to be a game changer for the Indonesian cosmetic industry. Halal cosmetic products have dominated the Indonesian market (Global Business Guide Indonesia, 2018). Following the potential of halal products in the country, Indonesia is also targeting to become the center of the halal industry by 2024. Thus, this provides a market advantage for halal cosmetic manufacturers in Indonesia for halal cosmetics.
People’s Demands and Tendencies (Opportunity)
Indonesia has a very large potential for the cosmetic industry and produces attractive and high-quality cosmetic products that meet the tastes and needs of the world market. The cosmetic industry in Indonesia can be used as a supporter of tourism and the creative economy with the diversity of Indonesian cosmetics supported by the potential wealth of raw materials. The Ministry of Tourism and Creative Economy also takes part in the Proudly Made in Indonesia National Movement with the hope of increasing the consumption of creative economy production, helping the wheels of the economy and local MSMEs(Small and Medium Enterprises) run as a means of marketing Indonesian local cosmetic products and opening up the widest possible employment opportunities.
To increase this opportunity, the key is to understand the behavior of consumers first. There are significant differences that exist from each consumer group; for example, young consumers are more interested in using cosmetic products that have more advanced benefits, while older consumers tend to choose more general benefits and use cosmetic products that can cover the shortcomings of their facial skin conditions. By understanding the differences that come from consumers, industry players can determine what strategies are suitable for each consumer group, then improve their brand performance, and can further encourage the progress of the cosmetic industry as a whole..